Mass Transit Sustainability
in the Saint Louis Region
Final Report
October 2015
Sponsored by
Midwest Transportation Center
U.S. Department of Transportation
Office of the Assistant Secretary for
Research and Technology
About MTC
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(UTC) sponsored by the U.S. Department of Transportation Office of the Assistant Secretary
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MTC lead institution.
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Technical Report Documentation Page
1. Report No.
2. Government Accession No.
4. Title and Subtitle
Mass Transit Sustainability in the Saint Louis Region
3. Recipient’s Catalog No.
5. Report Date
October 2015
6. Performing Organization Code
7. Author(s)
Ray A. Mundy, Ph.D.; Daniel L. Rust, Ph.D.; Sareema Koirala Phillips, Sidra
Nasser, María Gabriela Rodríguez Páez, and Elizabeth Snowden
9. Performing Organization Name and Address
Center for Transportation Studies
University of Missouri – St. Louis
240 JCPN, One University Boulevard
St. Louis, MO 63121-4400
8. Performing Organization Report No.
12. Sponsoring Organization Name and Address
Midwest Transportation Center
U.S. Department of Transportation
2711 S. Loop Drive, Suite 4700
Office of the Assistant Secretary for
Ames, IA 50010-8664
Research and Technology
1200 New Jersey Avenue, SE
Washington, DC 20590
13. Type of Report and Period Covered
Final Report
10. Work Unit No. (TRAIS)
11. Contract or Grant No.
DTRT13-G-UTC37
14. Sponsoring Agency Code
15. Supplementary Notes
Visit www.intrans.iastate.edu for color pdfs of this and other research reports.
16. Abstract
It has been often suggested that the definition of insanity is doing the same thing and expecting a different outcome. Unfortunately a
dispassionate evaluation of the current state of public transit in the United States would easily fit this definition. Public transportation
funding continues to require federal, state, and local tax reserves in an attempt to address the needs and adapt to the trends of growing
urban communities and support sustainable mass transit solutions. Fifty years of increased funding for domestic mass transit
infrastructure and services has been met with overall ridership decline (as a percentage of urban population). Caught between looming
deficits and a failure to attract consumers is a mangled web of inefficient operations, financially unsustainable funding commitments,
and an inability to adequately modernize transit systems. Despite good intentions, investments are now contributing to an unsustainable
trend.
Successful and scalable examples of ways to improve sustainability are already in place around the globe and are promoting an era of
shared responsibility for mass transit between public and private sectors. Latin America, being the earliest adopter of modern and
sustainable mass transit systems, operations, and infrastructure, has seen great economic and consumer success. Now other regions—
China, India, South Africa, North America, and Eastern Europe—are committing to innovative and rewarding approaches to leveraging
and restructuring mass transit systems.
Although still a work in progress for some cities, the partnering between government infrastructure and private investors supports a
future of flexibility, accountability, and profitability for mass transit in areas with growing urban populations and is a viable solution
for the transportation challenges and environmental concerns associated with large populations. This report explores alternatives
implemented in various countries and the factors that contributed to their successes and failures. Most successes tend to result from the
collaboration itself and lead to each sector’s common triumph: government stability through a reduced dependency on public subsidies
and increased private innovation.
These innovative solutions for improving mass transit are sustainable and scalable and require no additional government funding or
subsidies. They may be the only viable options available for creating sustainable mass transit systems.
17. Key Words
mass transit innovation—program sustainability—public-private partnership—public
transportation—union pensions
18. Distribution Statement
No restrictions.
19. Security Classification (of this
report)
Unclassified.
21. No. of Pages
22. Price
63
NA
Form DOT F 1700.7 (8-72)
20. Security Classification (of this
page)
Unclassified.
Reproduction of completed page authorized
MASS TRANSIT SUSTAINABILITY
IN THE ST. LOUIS REGION
Final Report
October 2015
Principal Investigator
Ray A. Mundy, John Barriger III Professor for Transportation Studies
Center for Transportation Studies, University of Missouri – St. Louis
Faculty Research Associate
Daniel Lee Rust, Assistant Director for Undergraduate Program Development
College of Business Administration, University of Missouri – St. Louis
Graduate Research Assistants
Sareema Koirala Phillips, Sidra Nasser, María Gabriela Rodríguez Páez, and Elizabeth Snowden
Authors
Ray A. Mundy, Ph.D.; Daniel L. Rust, Ph.D.; Sareema Koirala Phillips, Sidra Nasser, María
Gabriela Rodríguez Páez, and Elizabeth Snowden
Sponsored by
The Midwest Transportation Center and
The U.S. Department of Transportation
Office of the Assistant Secretary for Research and Technology
A report from
Institute for Transportation
Iowa State University
2711 South Loop Drive, Suite 4700
Ames, IA 50010-8664
Phone: 515-294-8103 / Fax: 515-294-0467
www.intrans.iastate.edu
TABLE OF CONTENTS
ACKNOWLEDGMENTS ............................................................................................................. ix
EXECUTIVE SUMMARY ........................................................................................................... xi
PURPOSE/PROBLEM STATEMENT ...........................................................................................1
HISTORY OF MASS TRANSIT SYSTEMS .................................................................................1
LITERATURE REVIEW OF U.S. MASS TRANSIT CHALLENGES .........................................5
The Transit Tale of Two Cities ............................................................................................8
METHODOLOGY ..........................................................................................................................8
BI-STATE DEVELOPMENT AGENCY OF THE MISSOURI-ILLINOIS
METROPOLITAN DISTRICT (BI-STATE) ......................................................................8
Quick Facts ..........................................................................................................................8
Transit System Ridership Statistics from the Years 2003 to 2012 ....................................11
Bi-State Service Area Population ......................................................................................16
Metro Transit Operating Data ............................................................................................19
Pension Plans .....................................................................................................................23
Personnel Data ...................................................................................................................26
CHICAGO REGIONAL TRANSPORTATION AUTHORITY ...................................................27
Quick Facts ........................................................................................................................27
Transit System Ridership Statistics from the Years 2003 to 2012 ....................................29
RTA Financial Data ...........................................................................................................33
Pension Plans .....................................................................................................................36
ANALYSIS OF CASE STUDIES .................................................................................................39
VIABLE ALTERNATIVES ..........................................................................................................42
Utilization of Public-Private Partnerships .........................................................................43
Reducing Costs and Increasing Revenue ...........................................................................44
Public Policy Implications .................................................................................................48
REFERENCES ..............................................................................................................................49
v
LIST OF FIGURES
Figure 1. Transit system ridership statistics, 2004 through 2013 and trend line for 10
years (linear regression) .....................................................................................................12
Figure 2. Transit system ridership statistics, 2004 through 2013 and trend line for 10
years (polynomial regression) ............................................................................................13
Figure 3. Transit system average weekday ridership, 2004 to 2013 and trend line for 10
years ...................................................................................................................................16
Figure 4. Bi-State service area population, 2004 to 2012 and trend line for 10 years ...................17
Figure 5. Total operating revenues and expenses for Metro St. Louis, 2004 to 2013 and
trend line for 10 years ........................................................................................................19
Figure 6. Principal operating revenues and expenses for Metro St. Louis, 2004 to 2013
and trend line for 10 years .................................................................................................20
Figure 7. Total non-operating revenues and total debt for Metro St. Louis, 2004 to 2013
and trend line for 10 years .................................................................................................21
Figure 8. Total assets and total debt for Metro St. Louis, 2004 to 2013 and trend line for
10 years ..............................................................................................................................22
Figure 9. Unfunded actuarial accrued liabilities for all pension plans, 2008 to 2012 and
trend line for 10 years ........................................................................................................24
Figure 10. Unfunded actuarial accrued liability as a percentage of covered payroll for all
pension plans 2008 to 2012, Bi-State, and trend line for 10 years ....................................25
Figure 11. Selected personnel by function, FY 2004 to 2013 and trend line for 10 years ............26
Figure 12. RTA ridership, 2003 to 2012 and trend line for 10 years (linear regression) ..............29
Figure 13. RTA ridership, 2003 to 2012 and trend line for 10 years (polynomial
regression) ..........................................................................................................................30
Figure 14. Chicago area population, 2003 to 2012 and trend line for 10 years .............................33
Figure 15. Primary government revenue and expenses, 2003 to 2012 and trend line for 10
years ...................................................................................................................................34
Figure 16. Expenses, 2003 to 2012 and trend line for 10 years .....................................................35
Figure 17. Revenue sources, 2003 to 2012 and trend line for 10 years .........................................36
Figure 18. Actuarial value of assets, actuarial accrued liability, and covered payroll, 2007
to 2012 and trend line for 10 years ....................................................................................37
Figure 19. Funded ratio and UAAL as a percentage of covered payroll, 2007–2012 and
trend line for 10 years ........................................................................................................38
Figure 20. Required employer contribution, 2007–2012 and trend line for 10 years ....................39
vi
LIST OF TABLES
Table 1. Total federal funding for mass transit, 2002 to 2012 .........................................................3
Table 2. Total funding for mass transit, 2002 to 2012 .....................................................................4
Table 3. 2013 fare box recovery – St. Louis Metro .........................................................................6
Table 4. 2012 fare box recovery – Chicago RTA ............................................................................6
Table 5. Metro service area indicators .............................................................................................9
Table 6. Information available on CAFR Bi-State years ended June 30, 2013 and 2012 .............10
Table 7. Transit system ridership statistics: system total and percentage change, 2005 to
2013....................................................................................................................................14
Table 8. Transit system average weekday ridership, 2005 to 2013 ...............................................15
Table 9. Bi-State service area population, 2004 to 2012 ...............................................................18
Table 10. Bi-State development pension plans and eligibility for full and reduced
retirement benefits .............................................................................................................23
Table 11. RTA service boards and operating characteristics .........................................................28
Table 12. RTA system ridership statistics: system total and percentage change, 2003 to
2012....................................................................................................................................31
Table 13. Chicago area population and percentage change, 2003 to 2012 ....................................32
vii
ACKNOWLEDGMENTS
The author would like to thank the Midwest Transportation Center and the U.S. Department of
Transportation Office of the Assistant Secretary for Research and Technology for sponsoring this
research.
ix
EXECUTIVE SUMMARY
Public transportation funding continues to require federal, state, and local tax reserves in an
attempt to address the needs and adapt to the trends of growing urban communities and support
sustainable mass transit solutions. Fifty years of increased funding for domestic mass transit
infrastructure and services has been met with overall ridership decline (as a percentage of urban
population). Caught between looming deficits and a failure to attract consumers is a mangled
web of inefficient operations, financially unsustainable funding commitments, and an inability to
adequately modernize transit systems. Despite good intentions, investments are now contributing
to an unsustainable trend.
Successful and scalable examples of ways to improve sustainability are already in place around
the globe and are promoting an era of shared responsibility for mass transit between public and
private sectors. Latin America, being the earliest adopter of modern and sustainable mass transit
systems, operations, and infrastructure, has seen great economic and consumer success. Now
other regions—China, India, South Africa, North America, and Eastern Europe—are committing
to innovative and rewarding approaches to leveraging and restructuring mass transit systems.
Although still a work in progress for some cities, the partnering between government
infrastructure and private investors supports a future of flexibility, accountability, and
profitability for mass transit in areas with growing urban populations and is a viable solution for
the transportation challenges and environmental concerns associated with large populations. This
report explores alternatives implemented in various countries and the factors that contributed to
their successes and failures. Most successes tend to result from the collaboration itself and lead
to each sector’s common triumph: government stability through a reduced dependency on public
subsidies and increased private innovation.
These innovative solutions for improving mass transit are sustainable and scalable and require no
additional government funding or subsidies. They may be the only viable options available for
creating sustainable mass transit systems.
xi
PURPOSE/PROBLEM STATEMENT
The purpose of this project was to examine the financial sustainability issues faced by most
transit systems in two cities as a way to explore sustainable mass transit service and financial
structure. It is not implied that public transit should be demolished or abandoned, but rather that
public transportation is a necessary addition to, and is supportive of, growing communities. The
ultimate goal is to implement sustainable mass transit options without further burdening federal,
state, or local government taxpayer funds. Public transit is essential for societal mobility,
especially to low-income citizens who cannot afford the luxury of personal automobiles or
multiple vehicles per family.
HISTORY OF MASS TRANSIT SYSTEMS
At the start of the 1950s, the majority of the nation’s transit systems were privately owned and
operated. However, due to increasing operational costs and fare limitations imposed on these
transit systems, they were on the brink of fiscal and physical collapse (Currier 2010). The largest
challenge faced by the privately owned transit systems in that era was that they were considered
public utilities and could not change routes, increase fares, or innovate without permission from
the local or state governments (O’Toole 2010). The government was slow to respond to the
needs of mass transit during this period because of the arrival and increased use of automobiles.
Automobiles proved to be direct competitors to mass transit in attracting local, state, and federal
transportation resources; all levels of government devoted their transportation resources to the
construction and improvement of highways. Then, the Urban Mass Transit Act of 1964 delivered
much needed help to revitalize and expand urban mass transit systems. According to Currier
(2010), the Urban Mass Transit Act authorized $375 million in capital assistance to be provided
over three years. With the passage of this Urban Mass Transit Act, public agencies acquired
private transit companies to ensure the security, maintenance and operation of mass transit. The
objective was to stabilize failing private operations with an infusion of public funds and provide
for future growth.
Following with a series of acts passed after the Urban Mass Transportation Act of 1964, the
federal government continued to expand its role in the nation’s mass transit systems with not
only capital subsidies but also operating subsidies. For example, two years later, Congress passed
the Urban Mass Transit Act of 1966 to fill in gaps and expand the programs established by the
Urban Mass Transportation Act of 1964. As per Currier (2010), the Urban Mass Transit Act
authorized annual appropriations of $150 million through 1969 for matching grants and loans,
enabling states and localities to construct and improve mass transit facilities.
A year later, the passage of the Urban Mass Transportation Assistance Act of 1970 authorized
the first long-term commitment of federal funds for mass transportation. Similarly, in 1974, in
response to increased maintenance and operational costs faced by the transit agencies, the
National Mass Transportation Assistance Act was passed. This act provided federal funds for
mass transit operation subsidies for the first time.
1
According to Currier (2010), the National Mass Transportation Assistance Act authorized $11.8
billion over a six-year period for capital and operating costs. As mentioned above, the initial
purpose of funding mass transit systems by the federal government was to rejuvenate these
entities and run them as an extension of the government. Some believed that without the
involvement of private companies, which had profit motives, mass transit systems would prosper
and grow as the government made investments in them. Unfortunately, despite the investment,
the mass transit systems have failed to thrive as the federal government and proponents of mass
transit funding once expected. Thus, the original purpose of mass transit funding was never
achieved.
In 1982, under the administration of President Ronald Reagan, the Office of Management and
Budget looked into phasing out and eventually eliminating transit operating subsidies. Despite
the Reagan administration’s best efforts, its attempts to phase out operating assistance were
thwarted by the National Conference of Mayors, the American Public Transit Association, and
the transit workers’ unions. As a result, the Federal Public Transportation Act of 1982 also
included funds for operating assistance. As per Currier (2010), the act authorized $16.5 billion
for mass transit through 1986.
The passage of the Federal Transit Act of 1991 authorized $31.5 billion for mass transit over six
years. This resulted in the largest funding increase since the federal government first created
funding programs for transit in 1964. Similarly, the Federal Transit Act of 1998 increased
funding levels by 70%, amounting to $41 billion for transit programs (Currier 2010).
Keeping up with this trend, according to the National Transit Database, federal funding for mass
transit increased by 72.5% over an 11 year period (2002–2012) to $10.8 billion. On average, the
federal government provides 17.86% of the total capital and operating funding for mass transit
(Table 1). Similarly, Table 1 shows that the federal funding for operating activities has increased
by 40.1%, and federal funding for capital investment has increased by 32.4% over an 11 year
period.
Similarly, state funding and local funding increased by 69% and 38%, respectively, over the
same 11 year period (Table 2). The objective of transit stability appears to have been
accomplished through these massive public investments in mass transit. However, the objective
of expanding traditional transit systems has not. Transit ridership continues to languish as it
currently represents approximately 5% of urban trips (Jaffe 2014).
Unfortunately, with increasing costs for operating mass transit and increasing public budget
constraints, the financial sustainability of the mass transit system is uncertain. This trend
highlights the problem that mass transit can no longer continue to function under the same
obsolete principal that it did during the 1960–2010 period—that more financial support equals
greater economic improvement. In order to change the trend, transit systems must be adapted and
changed to meet the public’s current needs.
2
Table 1. Total federal funding for mass transit, 2002 to 2012
Year
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Percentage Increase as of
Total Federal Funding
Operating
Federal
Funding
$1,302,197,044
$1,596,064,856
$2,024,216,157
$2,243,146,380
$2,523,359,552
$2,540,380,736
$2,567,667,538
$3,086,429,384
$3,550,943,662
$3,571,278,912
$3,343,576,584
32.4%
Capital
Federal
Funding
$4,993,714,432
$5,091,974,305
$4,930,228,302
$4,611,752,149
$5,552,125,521
$5,561,325,828
$6,418,647,652
$7,096,218,825
$6,813,141,491
$6,926,281,804
$7,515,782,462
40.1%
Total Federal
Funding
$6,295,911,476
$6,688,039,161
$6,954,444,459
$6,854,898,529
$8,075,485,073
$8,101,706,564
$8,986,315,190
$10,182,648,209
$10,364,085,153
$10,497,560,716
$10,859,359,046
72.5%
Total Funding
$37,096,627,731
$38,764,669,696
$39,980,023,555
$40,924,317,277
$43,493,139,290
$47,305,205,161
$52,565,656,846
$54,289,248,536
$54,354,844,811
$55,412,791,386
$58,466,704,589
Average
Federal/Total
16.97%
17.25%
17.39%
16.75%
18.57%
17.13%
17.10%
18.76%
19.07%
18.94%
18.57%
17.86%
Total funding includes funds provided by federal, state, local governments, and other sources
Percentage increase = (2012 ‒ 2001) ÷ 2002 Total Federal Funding
Source: National Transit Database – Operating and Capital Funding: Total Funding Time Series, Operating Funding Time Series, and Capital Funding Time
Series (www.ntdprogram.gov/ntdprogram/data.htm)
3
Table 2. Total funding for mass transit, 2002 to 2012
Federal
Year
Funding
State Funding
$6,295,911,476 $7,549,548,335
2002
$6,688,039,161 $7,665,491,425
2003
$6,954,444,459 $7,792,206,949
2004
$6,854,898,529 $8,197,154,962
2005
$8,075,485,073 $8,570,681,969
2006
$8,101,706,564 $9,455,804,640
2007
$8,986,315,190 $11,388,738,326
2008
$10,182,648,209 $11,901,631,478
2009
$10,364,085,153 $11,788,407,359
2010
$10,497,560,716 $11,787,905,172
2011
$10,859,359,046 $12,759,101,661
2012
72.5%
69.0%
10 year increase
12%
14%
Percentage increase as of
Total Funding
Local Funding as a percentage of Total Funding for 2012 = 30%
Local Funding
$12,513,244,859
$13,411,099,203
$13,659,439,016
$14,017,451,539
$14,260,822,603
$16,825,207,835
$18,344,859,645
$18,003,940,218
$17,917,291,156
$16,354,290,316
$17,268,905,063
38.0%
13%
Others
$10,737,923,061
$11,000,039,907
$11,573,933,131
$11,854,812,247
$12,586,149,645
$12,922,486,122
$13,845,743,685
$14,201,028,631
$14,285,061,143
$16,773,035,182
$17,579,338,819
63.7%
18%
Total Funding
$37,096,627,731
$38,764,669,696
$39,980,023,555
$40,924,317,277
$43,493,139,290
$47,305,205,161
$52,565,656,846
$54,289,248,536
$54,354,844,811
$55,412,791,386
$58,466,704,589
57.6%
57.6%
Calculation of 10 year increase: (2012-2002)/2002
Percentage increase: (2012-2002)/2002 Total Funding
Local funding as a percentage of Total Funding = ($17.579 ÷ $58.466) × 100%)
Source: National Transit Database – Operating and Capital Funding: Total Funding Time Series, Operating Funding Time Series, and Capital Funding Time
Series (www.ntdprogram.gov/ntdprogram/data.htm)
4
LITERATURE REVIEW OF U.S. MASS TRANSIT CHALLENGES
Public transit has been facing financial challenges for decades. These challenges include, but are
not limited to, challenges arising from aging infrastructures, declining ridership as a percentage
of urban population, labor, financial and operational burdens imposed by strong unions,
increases in general operating costs, increased affluence, and use of personal vehicles. The
financial challenges faced by public transit are mounting year after year, despite U.S. taxpayers
pumping billions in subsidies and infrastructure into mass transit systems. This massive taxpayer
investment has paid for urban public transportation systems that fewer and fewer Americans are
using. Over the years, mass transit ridership has stagnated at around 5% with population growth
taken into account (Jaffe 2014). Mass transit systems’ failure to attract and retain transit ridership
greatly impacts their financial sustainability, although the public need for urban transit remains
high.
The conveniences provided by owning a personal vehicle pose one of the largest challenges for
mass transit in attracting users. At times, mass transit simply cannot go where and when a rider
would like to go. In addition, because of rising personal incomes, individuals are more likely to
prefer the use of personal vehicles as opposed to riding mass transit. As personal incomes in the
United States rise, private vehicle ownership and usage continue to grow. Additionally,
individuals tend to move further out from the city centers, causing a decrease in urban density
that affects the relative use of private transportation and public transit (Ong et al. 2010). Because
of this trend of moving away from city centers, building urban transit systems that can compete
with the conveniences provided by the automobile is an incredibly expensive and unrealistic
option. As per O’Toole (2010), in 2007 Americans spent 9.2% of their personal income on
driving and 0.6% on all other forms of passenger transportation. O’Toole (2010) further points
out that taking higher energy prices into consideration does not change the percentage of
personal income that Americans spend on driving, because urban transit requires about the same
amount of energy as driving. Thus, the long-term response to high oil prices is to drive fuelefficient cars instead of driving less or using mass transit systems. O’Toole (2010) also notes that
when gasoline prices doubled in 2008, people reduced their driving by a mere 4%, but if prices
had remained high, they would have purchased fuel-efficient cars and returned to prior levels of
driving. With the 21st century’s advances in transportation technology towards more fuelefficient cars, the popularity and widespread use of such models as the Toyota Prius and Nissan
Leaf reinforce O’Toole’s views.
As discussed earlier, federal funding for mass transit has increased by 72%, for operating
activities by 32.4%, and for capital investment by 40.1% over an 11 year period (2002 through
2012). The data obtained from the National Transit Database shows that mass transit systems in
the United States rely heavily on federal subsidies for both operating and capital expenditures,
with more and more funds coming from local tax levies. The analysis of this data shows a trend
towards increasing government funding for operating activities over the years. The inability of
the transit systems in the United States to recover even a small portion of their operating
expenses from the fare box escalates the reliance of the transit systems on public subsidies
without providing incentives for transit systems to be self-sufficient. For example, in 2013 the
fare box recoveries of variable operating costs for St. Louis MetroBus, MetroLink, and Call-aRide were 20.80%, 27.20%, and 4.9%, respectively (Table 3).
5
Table 3. 2013 fare box recovery – St. Louis Metro
St. Louis Metro
MetroBus
MetroLink
Call-a-Ride
Fare box recovery
20.80%
27.20%
4.90%
Source: Bi-State Development Agency of the Missouri-Illinois Metropolitan District Comprehensive Annual
Financial Report (CAFR) Fiscal Years Ended June 30, 2013 and 2012
Similarly, in 2012, the fare box recoveries for Chicago Transit Authority (CTA), Pace (suburban
bus), and Metra (commuter rail) were 42.90%, 13.30%, and 47.50%, respectively (Table 4).
Table 4. 2012 fare box recovery – Chicago RTA
Chicago RTA
Chicago Transit Authority
PACE
Metra Rail
Fare box recovery
42.90%
13.30%
47.50%
Source: National Transit Database (2012) - Top 50 Agencies
www.ntdprogram.gov/ntdprogram/pubs/top_profiles/2012/Transit%20Profiles%20Top%2050%20Agencies.pdf
This is to be expected because the Chicago Regional Transportation Authority (RTA) serves a
much more densely populated area. According to the Federal Transit Administration (FTA), the
fare box recovery ratio for national transit systems in 2012 was 32.8% (FTA 2013) of their
variable operating costs when total costs were considered by adding fixed costs of infrastructure
and rolling stocks.
According to Buehler and Pucher (2011), subsidies for public transport in the United States have
more than doubled from 1991 to 2007 since the passage of the Intermodal Surface Transportation
Efficiency Act (ISTEA). During this period, the subsidy has increased from $14 billion to $32
billion, while vehicle kilometers of public transport supply rose by almost 20% and passenger
trips increased by only 16%. However, as Buehler and Pucher (2011) note, these statistics hardly
grew when controlling for population growth, and the share of operating expenses covered by
farebox revenue fell from 37% in 1992 to less than 33% in 2007. The authors further explain that
from 1992 to 2007 the transit agencies expanded their services at a faster rate than ridership
increased, which caused the ridership to decline along with fare box revenue per vehiclekilometer of transit service (Buehler and Pucher 2011).
Contributing to low productivity and high costs for the public transit systems, and thus putting
into question the long-term sustainability of the mass transit systems, are the unions that have a
restraining effect on the public sector’s ability to innovate and be flexible in varying its mass
transit product offerings to the riding public. As one might expect, public sector unions push for
higher pay irrespective of ridership or fare box revenues, thereby increasing government
spending, and give little regard for the financial viability of the mass transit system. According to
Edwards (2010), on average union members had a 31% advantage in wages and a 68%
6
advantage in benefits as compared to their nonunion counterparts performing similar tasks in
private industry. Besides raising compensation costs, public transit unions reduce government
efficiency in other ways. For example, these public unions tend to protect unproductive workers,
retain more staff on payroll than necessary, and discourage the use of volunteers in government
activities (Edwards 2010).
One of the ways to measure the value, productivity, and progress of the mass transit systems is to
measure the increase in ridership over the years. As mentioned earlier, transit ridership hovers
around 5% when population growth is taken into account (Jaffe 2014). However, the
productivity of the mass transit systems has remained more or less constant over the years. On
the other hand, the costs of operating the mass transit systems have increased due to the wage
rates and benefits that are well above the market rates. The situation here is unlike that at any
private organization, because a private organization would be unable to sustain the trend of flat
productivity coupled with increased labor costs. Eventually, market forces would force a private
organization out of business. On the contrary, market forces are not a threat to a public mass
transit system, because the increased costs of labor for the transit employees are heavily
subsidized by the taxpayers.
Proponents of mass transit systems emphasize the reduction in air pollution, road congestion, and
fuel consumption through the use of mass transit. They also suggest that there could be
revitalization of cities and cost savings for individuals, in an effort to draw users out of their
automobiles and into mass transit systems. While these elements do encourage citizens to try
public transit initially, the quality of the public transit (which is affected by waiting period, aging
infrastructures, and personal safety issues) determines whether or not these individuals become
habitual users of mass transit. Indeed, waiting period greatly affects the quality of public transit.
According to Redman et al. (2013), European Local Transport Information Service documented
that a bus service about six minutes faster than a trip done by car achieved a car mode share
reduction from 34% to 22% in Dublin, Ireland (Redman et al. 2013). Thus, transit services that
are faster than private auto traffic will be successful in attracting riders.
Aging infrastructures are also an issue. The public transit systems in the United States have been
facing problems due to lack of funds needed to make repairs. The aging transit systems are more
likely to be prone to delays due to maintenance issues. Some of these systems lack state-of-theart safety systems and are unable to meet basic operational needs. These factors ultimately
reduce the quality of the transit system and could drive away transit system riders towards
alternative modes of transportation. Redman et al. (2013) propose that public transport suppliers
must be aware of the quality attributes that are most valued by the potential new automobile
users and then perform public transport improvements addressing those preferences.
Additionally, according to Buehler and Pucher (2011), the mass transit system in the United
States lacks integration of different modes of public transportation at metropolitan, regional, and
national levels, while integration makes public transportation convenient and attractive to riders.
The authors further point out that there is little integration of suburban bus timetables with rail
transit timetables, and many transit stops are not in walking- or bicycle-friendly areas, with no
sidewalks or only short portions of sidewalks (Buehler and Pucher 2011).
7
With the viability of modern technology and accessibility of smartphones, regional transit
authorities should invest in applications (apps) that provide real-time information on transit
routes and timetables and sync all the information together. In addition, the use of reloadable
smart cards instead of paper tickets and transfer slips for mass transit creates value-added
services, not only for the mass transit riders, but also for the transit authorities. For example, use
of smart cards diminishes the need to carry cash or have exact change (Metro Transit – St. Louis
2014). Additionally, the bus operators do not have to hassle over exact change, which will
ultimately lead to saved time and more efficient services provided by the mass transit system.
Most of the transit systems in the United States accept cash as a form of payment. Cash is the
one asset that is most susceptible to theft. With the widespread use of smart cards, the transit
system authorities are less likely to face a reduction in revenue due to theft by employees that
handle the cash collected via fare box. Additionally, with the use of smart cards, the collection of
fares is electronic. Thus, transit systems can reap the benefit of efficient and real-time data
updates into their system.
The Transit Tale of Two Cities
In order to substantiate the hypothesis that the current financial trends of the mass transit systems
are not sustainable, two transit systems are researched below: the Bi-State Development Agency
of the Missouri-Illinois Metropolitan District (Bi-State) and the Chicago Regional Transportation
Authority. The data analyzed were obtained from the Comprehensive Annual Financial Reports
(CAFRs) from both the Bi-State Development Agency and the RTA (Bi-State Development
Agency 2013, RTA 2012, and RTA 2013). The CAFRs are comprised of a set of financial
statements required by state law that are audited in accordance with U.S. Generally Accepted
Auditing Standards by an independent firm of public accountants.
METHODOLOGY
The methodology consisted of two steps. The first step was to analyze operating revenues, nonoperating revenues, personnel data, ridership statistics, population, and pension plans over a 10
year span. The second step was to create a forecast of estimated activity over the next years if no
changes are made to the system.
BI-STATE DEVELOPMENT AGENCY OF THE MISSOURI-ILLINOIS
METROPOLITAN DISTRICT (BI-STATE)
Quick Facts
In 2013 MetroBus celebrated its 50th anniversary. As per the CAFR, “MetroBus is the largest
part of the transit system carrying 29.4 million riders during FY 2013.” MetroBus operates 74
lines in Illinois and Missouri (Bi-State Development Agency 2013). Metro Call-A-Ride
celebrated its 25th anniversary in FY 2013. That year, Call-A-Ride carried 591.2 thousand
customers and operated 5.2 million revenue miles. MetroLink operates two lines: Red Line and
8
Blue Line. The Red Line operates from the St. Louis-Lambert Airport (north St. Louis County)
to the Shiloh-Scott Station (Shiloh, Illinois). The Blue Line operates from the ShrewsburyLansdowne Station (Shrewsbury, Missouri) to the Fairview Heights Station (Illinois). According
to annual performance indicators, the Metro service area has the indicators shown in Table 5.
Table 5. Metro service area indicators
Indicators
MetroBus
MetroLink Call-A-Ride vans
Active fleet size-total vehicles
Passenger trips
Revenue miles
Fare box recovery
382
29,408,800
18,478,303
20.8%
87
17,054,484
3,118,537
27.20%
117
591,197
5,246,725
4.9%
Source: Bi-State Development Agency 2013
The trends for selected datasets from the CAFR, years ending June 30, 2013 and June 30, 2012,
from Bi-State were examined. The purpose of the analysis was to look at possible data trends
that may give a better idea of the current and future standing of the public transportation system
in Missouri-Illinois in terms of financial sustainability, ridership, and funding. The reviewed data
makes reference to the multi-modal mass transit system that goes by the name Metro. The Metro
system includes three modes of transportation: MetroBus, MetroLink, and Metro Call-A-Ride.
The data collected from the CAFR from Bi-State are available in Table 6.
Most of the data has been fitted using a linear regression to account for the goodness of fit of the
model or 𝑅 2 (the amount of the variance in the observed dependent variable that can be
explained by the model, in this case, by the trend across the years) and has been projected 10
years ahead in order to look at future trends based on actual data.
9
Table 6. Information available on CAFR Bi-State years ended June 30, 2013 and 2012
INFORMATION FOR LAST 10 FISCAL YEARS IN 2013 CAFR - FY 2004 TO FY 2013
Annual Average Unemployment Percent Rate In Bi State Service Areas
Bi State Service Area Population
Capital Assets Stats By Function And Program
Capital Assets
Executive Services- Operating Revenues, Expenses, Net Income
Mass Transit Sales Tax Bonds- Operating Budget
Mass Transit Sales Tax Bonds- Sources And Uses For Operations
Net Position By Operating Org
Operating Data- Gateway Arch Parking Facility
Operating Data- Gateway Arch Riverfront Attractions
Operating Data- Gateway Arch Tram System
Operating Data- Metro Transit
Operating Data- St Louis Downtown Airport
Operating Revenues, Expenses, Net Income
Per Capita Personal Income By Region
Personnel Data
Ratio Of Outstanding Debt By Type
Ridership Stats
Transit System Mileage Statistics
Transp Sales Tax Collections & Receipts
Use Of Proposition M Sales Tax
INFORMATION FOR FY 2012 IN 2013 CAFR
Assets By Org -In 2013 Cafr
Cash Flow From Operating Act- In 2013 Cafr
Cash Flows By Org & Net Increase In Cash Equivalents- In 2013 Cafr
Liabilities By Org & Net Position- In 2013 Cafr
Net Cash Provided Used For Operating Activities- In 2013 Cafr
Operating Revenues & Non Operating Rev By Org- In 2013 Cafr
10
Table 6. Information available on CAFR Bi-State years ended June 30, 2013 and 2012
(continued)
INFORMATION FOR FY 2013 IN 2013 CAFR
Assets By Org
Assets
Bi State Region Top Businesses By Employee
Capital Assets
Cash & Cash Equivalents End Of Year
Cash Flows By Org And Net Increase In Cash Equivalents
Cash Flows
Covered Salaried Plans & Unions
Liabilities By Org & Net Position
Liabilities
Net Cash Provided-Used For Operating Activities
Operating & Non Operating Revenues By Org
Operating & Nonoperating Revenues
Pension Plans By Contributor
Pension Plans Trend 3 Years
Reconciliation Of Operating Loss
Schedule Of Funding Progress Pensions
Transit Fares
Combined Statement Net Position 2012 2013
Source: Bi-State Development Agency 2013
Transit System Ridership Statistics from the Years 2003 to 2012
The first set of data analyzed is the transit system ridership statistics from the years 2003 to 2013
(Bi-State Development Agency 2013). A data trend line was estimated for each of the ridership
modes (MetroBus, MetroLink, Call-A-Ride, and system total) as well as a 10 year projection.
Current and future trends of the data estimating the models using different methods were looked
at, including a linear model and a polynomial model.
As for the linear model, it does not fit the data well: most of the 𝑅 2 values range from 0.04 to
0.2, except for the Call-A-Ride trend line (Figure 1), which has an 𝑅 2 of 0.6.
11
Source: Bi-State Development Agency 2013
Figure 1. Transit system ridership statistics, 2004 through 2013 and trend line for 10 years
(linear regression)
The Call-A-Ride ridership trend line is stable over time and during the 10 year projection, but
this service is heavily subsidized. For the period 2004–2012, transit ridership for MetroBus and
MetroLink experienced an inflexion point in 2010. Unfortunately, because of the great variation
of the data in such a short period, it is complicated to estimate a regression model that would
predict future trends with accuracy. To attempt to find a model that fits the data better, a
polynomial trend line for the data set (except for Call-A-Ride data) was used; the polynomial
trend line shows higher 𝑅 2 values for the system (before 0.04; now 0.16), MetroBus (before
0.20; now 0.22), and MetroLink (before 0.08; now 0.44) (Figure 2). The only inconvenience in
using a polynomial model is that the regression lines are now not as smooth as before, even if
they have a better fit compared to the linear model. As seen, the decline in ridership by mode
(except for Call-A-Ride) is steady and shows a very pessimistic scenario (Figure 2).
Therefore, the optimal model is ambiguous because of the variation of the data. Nevertheless, the
general conclusion is that there is a decline in the system’s total ridership driven by a decline in
MetroBus ridership.
12
Source: Bi-State Development Agency 2013
Figure 2. Transit system ridership statistics, 2004 through 2013 and trend line for 10 years
(polynomial regression)
Table 7 shows the percentage change in the system total statistics with respect to previous years
(millions of persons), the system total percent change with respect to the previous year, and the
system total change with respect to 2004.
As seen in the table, from the period 2004–2005, there was an increase in ridership of 1.9%, and
the ridership statistics kept increasing at a rate of 4.5% (2005–2006) to 5.5% (2007–2008),
which was pretty good. This trend can be seen in Figure 1 as well. However, the ridership
decreased by 23% from 2009–2010 (Table 7). As explained above, the decline was mostly driven
by a decrease in ridership of MetroBus (Figure 1). After this episode, the system had a slow
recuperation, increasing ridership to 8.6% from 2011–2012 followed by a slight increase in the
next period (0.7% from 2012–2013). With respect to 2004, the ridership increased by only 3.1%
in 2013. In comparison to 2013, the ridership in 2007 and 2008 increased by double digits
(17.8% and 15.6%, respectively).
13
Table 7. Transit system ridership statistics: system total and percentage change, 2005 to 2013
Years
2005
System Total Change
861,411
(with respect to
previous year)
2006
2,080,141
2007
2008
2,357,548 2,823,537
2009
2010
2011
2012
2013
-997,877
-12,138,143
2,361,943
3,712,194
349,631
System Total Percent
Change (with respect
to previous year)
1.9%
4.5%
4.9%
5.5%
-1.9%
-23.0%
5.8%
8.6%
0.7%
System Total Percent
Change (with respect
to 2004)
1.9%
6.4%
11.6%
17.8%
15.6%
-11.0%
-5.8%
2.3%
3.1%
Source: Adapted from Bi-State Development Agency 2013
14
Table 8 shows the transit system average weekday ridership for the years 2004 to 2013.
Table 8. Transit system average weekday ridership, 2005 to 2013
System/avg.
weekday
MetroBus %
Change (with
respect to previous
year)
MetroBus %
Change (with
respect to 2004)
MetroLink %
Change (with
respect to previous
year)
MetroLink %
Change (with
respect to 2004)
Call-A-Ride %
Change (with
respect to previous
year)
Call-A-Ride %
Change (with
respect to 2004)
2005
2006
2007
2008
2009
2010
2011
2012
2013
-0.6%
8.3%
-3.5%
4.7%
-1.7% -26.8%
8.3%
9.8%
-1.1%
-0.6%
7.6%
3.9%
8.8%
7.0%
-15.2%
-6.9%
-7.9%
6.1%
-5.2% 33.3% 5.0%
2.4%
4.9%
0.8%
6.1%
0.6% 34.2% 40.8% 33.3%
12.2%
15.0%
20.6%
21.5%
-1.2%
-1.3%
0.7%
3.5%
-3.8% -17.2%
4.0%
1.3%
0.3%
-1.2%
-2.5% -1.8%
1.6%
-2.2% -19.1%
-15.8%
-21.7%
-5.4% -15.8%
-14.8% -14.5%
Source: adapted from Bi-State Development Agency 2013
Percent change with respect to the previous year and with respect to a baseline year (2004) were
computed. As seen in the table, for the year 2010 most of the statistics decreased significantly.
The weekday ridership for MetroBus declined 7.9% in 2013 with respect to 2004, whereas the
weekday ridership for MetroLink increased by a staggering 21.5% with respect to 2004. Despite
a steady trend line for Call-A-Ride (Figure 3), the average weekday ridership declined by 14.5%
with respect to 2004.
15
Transit System Average Weekday Ridership Metro St. Louis
2004- 2013 and Trend line for 10 Years (linear model)
120,000
Persons
100,000
R² = 0.3028
80,000
60,000
R² = 0.1413
40,000
20,000
R² = 0.6465
0
MetroBus
MetroLink
Call-A-Ride
Linear (MetroBus)
Linear (MetroLink)
Linear (Call-A-Ride)
Source: Bi-State Development Agency 2013
Figure 3. Transit system average weekday ridership, 2004 to 2013 and trend line for 10
years
The linear trend line for the ridership (Figure 1) as well as the linear tread line for average
weekday ridership (Figure 3) projects that the ridership for MetroLink is expected to increase in
the future and the ridership for MetroBus is expected to decline. The decline in ridership for
MetroBus is projected to occur at a much faster rate, therefore causing the entire system ridership
to decline in the future.
Bi-State Service Area Population
It’s very interesting to contrast ridership statistics with the Bi-State service area population,
which includes St. Clair County, Madison County, and Monroe County in Illinois and St. Louis
City, St. Louis County, St. Charles County, and Jefferson County in Missouri. Due to the decline
in total ridership in 2010, one could extrapolate that a similar pattern is expected for the service
area’s population in 2010 (that is, a decline in population of the service area causing the ridership
to decline). However, this is not the case, because the service area population over the years
(2004–2012) has been more or less consistent. Therefore, ridership decline for St. Louis Metro
was caused by factors other than the decline in service area population.
As seen in Figure 4, the trend line for Missouri fits the data well: using a log model, the 𝑅 2 is
0.47, which means that about 47% of the variation of the variable served population is explained
by time.
16
Source: Bi-State Development Agency 2013
Figure 4. Bi-State service area population, 2004 to 2012 and trend line for 10 years
The trend line for Illinois also fits the data well: using a linear model, the 𝑅 2 is 0.92, which
means that around 47% of the variation of the dependent variable served population is explained
by time. As seen, there is not much variation, because the population served in Illinois hovers
around 500,000 persons, and the population served in Missouri ranges between 1,880,000 and
1,908,000 from 2004 to 2012. Actually, the total percent change increase in the Bi-State service
area population was 3.1% for Illinois and 1.4% for Missouri, for a total of 1.7% for the total BiState service area in the years 2004 to 2012 (Table 9).
17
Table 9. Bi-State service area population, 2004 to 2012
Illinois
St. Clair County
Madison County
Monroe County
Illinois total
Missouri
St. Louis City
St. Louis County
St. Charles County
Jefferson County
Missouri total
Total Bi-State
Service Area
Percent
Change
20042012
2004
2005
2006
2007
2008
2009
2010
2011
2012
258,406
264,032
30,659
553,097
258,849
264,911
31,300
555,060
260,503
266,119
31,944
558,566
261,238
267,105
32,441
560,784
262,131
267,839
32,871
562,841
263,617
268,457
33,236
565,310
270,399
269,314
33,009
572,722
270,259
268,459
33,306
572,024
268,858
267,883
33,357
570,098
4.0%
1.5%
8.8%
3.1%
350,705
352,572
353,837
355,663
356,730
356,587
319,008
318,069
318,172
1,004,271
999,523
996,664
993,690
992,331
992,408
998,772
998,692 1,000,438
318,743
327,594
336,422
343,833
349,595
355,367
361,725
365,151
368,666
208,186
210,615
213,768
215,904
217,599
219,046
219,056
219,480
220,209
1,881,905 1,890,304 1,900,691 1,909,090 1,916,255 1,923,408 1,898,561 1,901,392 1,907,485
2,435,002 2,445,364 2,459,257 2,469,874 2,479,096 2,488,718 2,471,283 2,473,416 2,477,583
-9.3%
-0.4%
15.7%
5.8%
1.4%
1.7%
Source: adapted from Bi-State Development Agency 2013
18
It is interesting to look at the percent change from 2004 to 2012 for Illinois and Missouri. Illinois
saw an increase of 3.1% of served population for the period 2004–2012, mainly driven by an
8.8% increase in Monroe County in the same period. In contrast, Missouri saw an increase of just
1.4%, partly driven by a decline of 9.3% in St. Louis City. Surprisingly, there was an increase of
15.7% in the service area of St. Charles County for that period. In conclusion, the Bi-State
service area population has slightly increased during the period 2004 to 2012, but the projections
demonstrate that the trend will remain stable; as seen, there has been a decline in the statistics for
St. Louis City, contrasting with an increase in the statistics for St. Charles County (Table 9).
Metro Transit Operating Data
Metro Transit operating revenues consist of operating revenues, operating expenses, operating
income (or loss), non-operating revenue (or expense), total non-operating revenue (or expense),
net income (or loss) before transfers, net income (or loss), and total debt. As seen in Figure 5, it
is evident that total operating expenses need to be tamed not only at present but also for the next
10 years.
Source: Bi-State Development Agency 2013
Figure 5. Total operating revenues and expenses for Metro St. Louis, 2004 to 2013 and
trend line for 10 years
The 𝑅 2 for total operating expenses is 0.93, and the 𝑅 2 for total operating revenues is 0.89,
which means that around 90% of the variation of the dependent variable is explained by the
model. This allows us to confirm that the trend will continue as depicted in Figure 5. For
example, expenses will continue to overrun revenues if immediate measures are not taken to
curtail the expenses.
19
Figure 6 shows the principal operating revenues and expenses for the Metro system.
Source: Bi-State Development Agency 2013
Figure 6. Principal operating revenues and expenses for Metro St. Louis, 2004 to 2013 and
trend line for 10 years
We used a linear model to fit the data, and, as shown by the 𝑅 2 , the model is a good fit for the
data (𝑅 2 values are between 0.86 and 0.95, except for the variable service revenue). Wages and
benefits make up the biggest operating expense for the St. Louis Metro system. The dollar
amount spent on wages and benefits is three times the amount collected from passenger revenue
(wages and benefits account for $158,765,282 in 2013 compared to $50,725,441 for passenger
revenue in the same year).
The trend shown in Figure 6 is alarming because it projects wages and benefits increasing at a
faster rate than either of the operating revenue sources, which puts into question the financial
sustainability of the Metro system. For instance, wages and benefits represent 66% of total
operating expenses in 2013; expenses in materials and supplies constitute the second most
important expense for 2013, accounting for 15.4% of total operating expenses; services
constitute 11.8% of the total; and finally casualty and liability, combined with other operating
expenses, together constitute 6.8% of the total.
The bulk of non-operating revenues are grants and assistance (Bi-State Development Agency
2013), which usually offset total non-operating revenue (expense). According to the information
retrieved from the CAFR, grants and assistance in FY 2004 and 2005 were respectively 0.96 and
2 times as large as total non-operating revenue. For FY 2004, grants and assistance were equal to
$127,982,771 compared to $133,126,164 for total non-operating revenues (so, grants were 96%
of that proportion). For FY 2005, grants and assistance were equal to $147,476,596 compared to
20
$71,785,841 dollars for total non-operating revenues (so, grants were more than twice the
amount of non-operating revenues). Despite this, the operating loss of the system (which is equal
to operating revenues minus operating expenses and depreciation or amortization) exceeds total
non-operating revenue, generating a net income loss (equal to total non-operating revenue plus
operating loss) that is progressing (Figure 7).
Source: Bi-State Development Agency 2013
Figure 7. Total non-operating revenues and total debt for Metro St. Louis, 2004 to 2013
and trend line for 10 years
Finally, total debt is increasing at a staggering pace, as seen in Figure 7, reaching $559,392,536
in 2013, which represents an increase of 29.4% with respect to 2004 (in that fiscal year, total
debt was equal to $432,205,818).
21
Figure 8 shows the current situation and a 10 year trend line for the variables total assets and
total debt: when using a linear model, the 𝑅 2 for total debt is a modest 0.43, but it is equal to
0.92 for total assets, which means that the variation in the variable is almost fully explained by
time.
Source: Bi-State Development Agency 2013
Figure 8. Total assets and total debt for Metro St. Louis, 2004 to 2013 and trend line for 10
years
The graph shows a steady decline in total assets while total debt slowly climbs. Thus, the picture
in the future is not promising: as total debt increases, total assets decline to a point where they
are insufficient to cover the total debt (year 2021), all other things equal. Overall, wages and
benefits constitute the bulk of the operating expenses of the Metro system, and they are playing a
detrimental role in the financial sustainability.
It is worth pointing out that most operating revenues and expenses are generated by the Metro
Transit System: total operating revenues were $59,817,544 in 2013, compared to $71,622,808
(after eliminations) generated by the whole system (executive services, Gateway Arch Tram
System, Gateway Arch Parking Facility, Gateway Arch Riverfront Attractions, St. Louis
Downtown Airport, and the Metro Transit System). Total operating expenses were $324,770,572
for the Metro Transit System (including amortization), compared to $321,137,278 for the whole
system (including amortization and after eliminations). Finally, wages and benefits constituted
$158,765,282 of expenses for the Metro Transit System in 2013, compared to $164,549,736 for
the whole system (Bi-State Development Agency 2013).
22
Pension Plans
As one might expect, generous public sector pension plans are a major contribution to mass
transit unsustainability. As stated in the 2013 CAFR from Bi-State (2013), the agency sponsors
four defined-benefit pension plans, which are funded to the fullest extent possible through
investments and contributions from the entity:




The Pension Plan for Salaried Employees or Salaried Plan
The “788 O&M” Plan (Bi-State Development Agency Missouri-Illinois Metropolitan District
and Division 788 Amalgamated Transit Union, AFL-CIO Employees’ Pension Plan and
Agreement. This union represents MetroBus, MetroLink, and Metro Call-A-Ride van
operators. It is Metro’s largest union.)
The 788 Clerical Plan (Bi-State Development Agency Missouri-Illinois Metropolitan District
and Division 788, Clerical Unit Amalgamated Transit Union, AFL-CIO Employees’ Pension
Plan and Agreement)
The IBEW Plan (Bi-State Development Agency Missouri-Illinois Metropolitan District and
Locals No. 2 and No. 309 of the International Brotherhood of Electrical Workers Employees’
Pension Plan and Agreement)
Table 10 provides a brief description of the four plans’ eligibility for full and reduced retirement
benefits.
Table 10. Bi-State development pension plans and eligibility for full and reduced
retirement benefits
Salaried Plan
Eligibility for
full
retirement
benefits
Eligibility for
reduced
retirement
benefits
Employees retiring
after attaining the
normal service
retirement age as
defined in the plan.
Must have 5 years
of credited service.
788 O&M
(a) age 65 with 10
or more years of
credited service or
(b) the completion
of 25 years of
credited service or
(c) age 55 with 20
or more years of
credited service
Participants who
have attained age
55 with 15 years
of credited service
Retirement benefits
are payable
monthly for life
788 Clerical
(a) age 65 with 10
years of credited
service or
(b) the completion
of 25 years of
credited service
IBEW
(a) age 65 with 12
or more years of
credited service or
(b) the completion
of 25 years of
credited service
(a) age 62 with 10
or more years
credited service or
(b) age 54 to 62
with 15 years or
more of service
All Union employees must make plan contributions by payroll
deduction each week.
Upon retirement, employees are entitled to a monthly pension
benefit, payable for life.
Source: Source: Bi-State Development Agency 2013
23
As seen, each plan has a set of different eligibility terms for full retirement benefits as well as for
reduced retirement benefits.
The schedules of the funding progress for pension plans (Bi-State Development Agency 2013)
provide useful information regarding unfunded actuarial accrued liabilities (UAAL), usually
referred to as the unfunded pension liability, from 2008 to 2012. Figure 9 provides a linear trend
line for 10 years for each of the four pension plans.
Source: Bi-State Development Agency 2013
Figure 9. Unfunded actuarial accrued liabilities for all pension plans, 2008 to 2012 and
trend line for 10 years
As per the graph, the unfunded pension liability is expected to increase for all four pension plans.
The 𝑅 2 for all four plans is very high, ranging between 0.76 and 0.99, which means that a great
proportion of the variation in each of the four variables is explained by time.
The actuarial accrued liability (AAL) for each of the four pension plans outweighs the actuarial
value of assets, which means that the value of assets accumulated to finance pensions are
insufficient to cover the obligations. As seen in the table “Schedules of Funding Progress Pension Plans” (Bi-State Development Agency 2013), the UAAL for the 788 O&M Plan was
$83 million for 2012, which is the highest UAAL of all four pensions, followed by the UAAL of
the Salaried Plan ($15 million for 2012). At the bottom are the UAAL for the 788 Clerical Plan
($6 million for 2012) and the IBEW Plan ($700,000 for 2012).
The projections show that it is likely that the UAAL for the 788 O&M Plan will double within
the next 10 years, arriving at a staggering $160 million. The same is true for the three remaining
24
pension plans: the UAAL for the Salaried Plan will round up to $60 million, or four times what
is was in 2012. The UAAL for the Clerical Plan and the IBEW Plan will not experience such a
dramatic increase because they will stay below $20 million. If nothing is done to either decrease
the AAL or boost the actuarial value of assets, the scenario will be very unfavorable to the transit
system. Future revenues generated will be tied up to pay for the benefits promised to the current
and past employees, depicting a gloomy picture for Metro’s financial future.
In addition to providing data on unfunded actuarial accrued liabilities, CAFR for Bi-State
Development Agency provides data on UAAL as a percentage of covered payroll. This
percentage is derived by dividing the ratio of the UAAL by active employee payroll. The smaller
the proportion, the better the system is in financial terms. This information is concerning because
all of the UAAL as a percentage of covered payroll has been increasing from 2008 to 2012 and is
very high. For example, the UAAL as a percentage of covered payroll for the 788 Clerical Plan
ranges from 199.2% to 395.6%. The situation is alarming for the 788 O&M Plan as well because
the proportion ranges from 93.4% to 154%. Similarly, the proportion for the Salaried Plan
increased from -5.1% to 58.6% in 2012. Finally, the IBEW Plan experienced an increase from
11.3% to 24.2%. The trend line in Figure 10 shows that if nothing is done to improve the
situation, the proportion for the Clerical Plan will increase up to 900% in the next 10 years.
Source: Bi-State Development Agency 2013
Figure 10. Unfunded actuarial accrued liability as a percentage of covered payroll for all
pension plans 2008 to 2012, Bi-State, and trend line for 10 years
The proportions for the three other plans (788 O&M Plan, Salaried Plan, and IBEW Plan) are
also projected to increase in the next 10 years, but will not attain the same percentage increase as
the Clerical Plan. They are projected to remain below 300%. Regardless, the increase in
proportion questions the financial sustainability of the Metro system.
25
Unfortunately, information regarding the link between wages and benefits (as part of operating
expenses) and the covered payroll that figures in the Schedules of Funding Progress – Pension
Plans (Bi-State Development Agency 2013) was not provided in the CAFR. For example,
whether the covered payroll is part of wages and benefits or is a liability set aside in another fund
is unknown.
Personnel Data
It is not surprising to know that the vast majority of employees of the whole transport system
come from the Metro Transit System: for FY 2013, Metro Transit System employees represented
97.2% of the total (2,131 versus 2,192 persons). Employees from the Metro Transit System can
be divided into two groups: employees from transit operations (1,903 for FY 2013) and
supporting members (including finance, engineering and development, marketing, and IT, among
others), for a total of 2,131. More detailed information can be found in the table Personnel Data
(Bi-State Development Agency 2013). Figure 11 shows the details of selected personnel by
function: bus operators, paratransit operators, light rail operators, and Americans with
Disabilities Act (ADA) operators.
Source: Bi-State Development Agency 2013
Figure 11. Selected personnel by function, FY 2004 to 2013 and trend line for 10 years
As seen, bus operators constitute the majority of the selected personnel, experiencing a decrease
of 14 employees from 2004 to 2013. In 2009, there was a sudden decrease of bus operators,
bringing the number of bus operators to 610. The decreasing trends in personnel are evident for
bus operators and paratransit operators, the latter experiencing a decrease of 17 people from
2004 to 2013. Light rail and ADA operators have experienced a slight increase in the number of
26
operators: 26 for light rail operators and 3 for ADA operators, which represents an increase of
37% and 75%, respectively.
Vehicle maintenance is another important part of transit operations, constituting around 18% of
the Metro operations. As seen in Figure 11, the number of employees in vehicle maintenance
decreased slightly in 2010. As per the projections, the number of bus operators will decline over
time. As for 𝑅 2 , some values are high (paratransit operators, ADA operators, and light rail
operators), and others are very low (vehicle maintenance and bus operators). As Figure 11
shows, 𝑅 2 for the variable bus operators is indeed very low, which means that the variation in the
variable is poorly explained by time.
CHICAGO REGIONAL TRANSPORTATION AUTHORITY
Quick Facts
The Chicago RTA was created in 1974 to provide financial assistance to the then-existing public
transportation operators. Over the years, the RTA acquired and operated these public
transportation providers, as well as contracted with private operators, to provide service through
the purchase of service agreements. In 1983, the act passed by the Illinois General Assembly (the
RTA Act) assigned RTA as a financial and oversight body for the three transit agencies: Chicago
Transit Authority, Commuter Rail Division (Metra), and the Suburban Bus Division (Pace).
Collectively, the RTA, the CTA, Metra, and Pace are referred to as the RTA system (RTA 2012).
See Table 11.
27
Table 11. RTA service boards and operating characteristics
Chicago Transit Authority
Rapid Transit Motor Bus
Routes
8 rail routes
129 bus routes 11 rail routes
Stations served 145 stations
Riders per year
231.1
(millions)
Total Vehicles
1,200 transit
cars
Metra Commuter
Rail Division*
Pace Suburban Bus Division
Fixed Route Bus ADA Paratransit Dial-A-Ride Vanpool
138 regular routes
35 feeder routes
68 local
14 shuttle routes
services
7 seasonal routes
210
communities
served
241 stations
314.4
81.3
32.1
1,781 buses
146 locomotives
687 buses
839 passenger cars
*All data exclude NICTD South Shore
Source: Regional Transportation Authority 2012
28
3.8
1.3
2
234 lift-equipped
buses
176 liftequipped
buses
694
vanpool
vehicles
Metra provides commuter rail services connecting downtown Chicago with communities
throughout Cook, DuPage, Kane, Lake, McHenry, and Will counties. In addition, Metra provides
services through the purchase of service agreements with the Union Pacific Railroad, Burlington
Northern Santa Fe, and Northern Indiana Commuter Transportation District. The CTA provides
bus and rapid transit service within the city of Chicago and to 40 suburbs. Pace operates fixedroute bus services, paratransit, and vanpool services within Chicago’s suburbs (RTA 2012). The
six-county area served by the RTA system covers 3,700 square miles with a population of 8.3
million as of 2010 (RTA 2012).
The data sets examined herein are collected from the 2012 and 2013 CAFR of the RTA system.
Transit System Ridership Statistics from the Years 2003 to 2012
The first set of data analyzed is the transit system ridership statistics from the years 2003 to
2012. A data trend line has been estimated for each of the ridership modes (CTA, Metra, Pace,
and system total), as well as a 10 year projection. The trend line for CTA rail and bus fit the data
well: using a linear model, the 𝑅 2 is 0.92 and 0.41, respectively, which means that 92% of the
variation of the dependent variable for CTA rail service is explained by time and 41% of the
variation of the dependent variable for CTA bus service is explained by time. The 𝑅 2 trend line
for total CTA ridership is 0.92 as well (Figure 12).
Persons (in millions)
RTA Ridership 2003- 2012 and trend line for 10 Years (linear
model)
800
700
R² = 0.88
R² = 0.9213
600
500
400
300
R² = 0.4063
200
R² = 0.9228
R² = 0.5247
100
0
R² = 0.1797
Total CTA
System Total
Linear (Total CTA)
Linear (System Total)
Years
Metra
CTA - Bus
Linear (Metra)
Linear (CTA - Bus)
Pace
CTA - Rail
Linear (Pace)
Linear (CTA - Rail)
Source: Regional Transportation Authority 2012 (National Transit Database)
Figure 12. RTA ridership, 2003 to 2012 and trend line for 10 years (linear regression)
29
When attempting the regression with a polynomial model, the data fits better for both CTA rail
and bus. The 𝑅 2 for CTA rail with a polynomial model is 0.97 (0.92 before) and the 𝑅 2 for CTA
bus is 0.59 (0.41 before). The trend line for CTA bus with a linear model shows a steady increase
in ridership in the future, whereas the polynomial model shows a steady decline in ridership
(Figure 13).
Persons (in millions)
RTA Ridership 2003- 2012 and trend line for 10 Years
(polynomial model)
800
700
600
500
400
300
200
100
0
R² = 0.8987
R² = 0.9223
R² = 0.9703
R² = 0.8217
R² = 0.5892
R² = 0.3207
Total CTA
System Total
Poly. (Total CTA)
Poly. (System Total)
Years
Metra
CTA - Bus
Poly. (Metra)
Poly. (CTA - Bus)
Pace
CTA - Rail
Poly. (Pace)
Poly. (CTA - Rail)
Source: Regional Transportation Authority 2012 (National Transit Database)
Figure 13. RTA ridership, 2003 to 2012 and trend line for 10 years (polynomial regression)
The optimal model for this data set is the polynomial model. As for Metra and Pace, 𝑅 2 is 0.8
and 0.3, respectively, using a polynomial model, which means 80% of the variation in the
ridership for Metra is explained by time and only 30% of the variation in the ridership for Pace is
explained by time (Figures 12 and 13). Using the polynomial model, 𝑅 2 for the total system
ridership is 0.89, meaning that 89% of the variation in the dependent variable can be explained
by time. The CTA rail service has seen a steady increase in ridership for the period 2007–2012.
The average growth rate for the period 2003–2012 is 2.78%.
On the other hand, much fluctuation can be seen for CTA bus ridership. The CTA bus ridership
peaked at 328.2 million riders in 2008, but the average growth rate for the period 2003–2012 is
only 0.81%. Nevertheless, bus ridership has seen a slow, steady growth since 2010. During
2003–2012, the average growth rates for Metra and Pace were 1.10% and 1.88%, respectively
(Table 12).
30
Table 12. RTA system ridership statistics: system total and percentage change, 2003 to 2012
Service
Consumed
(in millions):
CTA - Bus
CTA - Rail
2003
293.6
181.1
2004
296
178.7
2005
305.5
186.8
2006
299.6
195.2
2007
309.3
190.3
2008
328.2
198.1
2009
318.7
202.6
2010
306
210.8
2011
310.4
221.6
2012
314.4
231.1
Total CTA*
474.7
474.7
492.3
494.8
499.6
526.3
521.3
516.8
532
545.5
74
33.7
73.8
34.1
76.1
36.9
79.9
38
83.3
39.2
86.8
40.5
82.3
35.1
82.2
35.1
82.7
37.1
System Total
582.4
582.6
605.3
612.7
622.1
653.6
638.7
634.1
651.8
666
System total
Percent
Change
-2.20%
0.03%
3.90%
1.22%
1.53%
5.06%
-2.28%
-0.72%
2.79%
2.18%
Metra
Pace**
81.3
39.2
Average
Metra %
Change
Pace %
Change
-0.27%
3.12%
4.99%
4.26%
4.20%
-5.18%
-0.12%
0.61%
-1.69%
1.10%
1.19%
8.21%
2.98%
3.16%
3.32%
-13.33%
0.00%
5.70%
5.66%
1.88%
*CTA Stat amounts include rail-to-rail transfers
**PACE 2007 Stat amount includes ADA Paratransit rides
Source: Regional Transportation Authority 2012 (National Transit Database)
31
In 2009 and 2010, the total RTA ridership decreased drastically after years of increase in
ridership. The percentage changes in ridership are -2.28% and 0.72% for 2009 and 2010,
respectively. In recent years, the RTA ridership has been increasing at a good pace. In
conclusion, the trend line for Pace, Metra, and total system ridership shows a pessimistic
scenario of decline in ridership in future years. CTA rail is the only aspect of the RTA system
that has a silver lining due to a steady increase in ridership at present and as forecasted by the
trend line (Figure 13).
The ridership increase for the CTA rail could be attributed to resources committed to the capital
projects. According to the 2012 CAFR, the proceeds from the bonds issued for these capital
projects are allocated by the RTA as follows: 50% for capital projects of the CTA, 45% for
capital projects of Metra, and 5% for capital projects of Pace.
The population of Chicago in 2003 was just over 12.5 million. In 10 years, the population grew
by 319,249, or 2.54%, with respect to 2003 (Table 13).
Table 13. Chicago area population and percentage change, 2003 to 2012
Fiscal Year
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Population
12,556,006
12,589,773
12,609,903
12,643,955
12,695,866
12,747,038
12,796,778
12,841,980
12,869,257
12,875,255
% change with
respect to 2003
0.27%
0.43%
0.70%
1.11%
1.52%
1.92%
2.28%
2.49%
2.54%
Source: Regional Transportation Authority 2012 (Bureau of Economic Analysis, U.S. Department of Commerce and
Bureau of Labor Statistics, U.S. Department of Labor)
The 10 year trend line for the Chicago area population has an 𝑅 2 of 0.98, meaning that 98% of
the variation of the variable served population is explained by time. The trend line shows a
steady growth in Chicago area population (Figure 14). Thus, some of the increase in ridership in
recent years can be explained by the increase in population.
32
Chicago Area Population, 2003-2012 and 10 year trend line
13,400,000
R² = 0.9835
13,200,000
Persons
13,000,000
12,800,000
12,600,000
Population
12,400,000
Linear (Population )
12,200,000
12,000,000
Years
Source: Regional Transportation Authority 2012 (Bureau of Economic Analysis U.S. Department of Commerce and
Bureau of Labor Statistics Data U.S. Department of Labor)
Figure 14. Chicago area population, 2003 to 2012 and trend line for 10 years
RTA Financial Data
The RTA Act (1983) appointed the RTA as a primary public body in the Chicago metropolitan
region to secure funds for public transportation. The act authorizes the RTA to impose a series
of taxes within the six-county metropolitan region by a vote of nine of its directors: a sales tax, a
car rental tax, a motor fuel tax, an off-street parking tax, and a replacement vehicle tax (RTA
2012). Regional (occupational and use) sales tax and sales tax match from the State of Illinois
are the primary sources of operating funding for the RTA (RTA 2013). Providing financial
assistance to service boards (CTA, Metra, and Pace), interest expenses, and capital grants
provided are the major expenses.
Figure 15 shows the total primary government expenses and revenue for the RTA.
33
Primary Government Total Revenue and Expenses, 20032012 and trend line for 10 years
$1,800,000
R² = 0.6349
Dollars (in thousands)
$1,600,000
$1,400,000
Total primary government
expenses
$1,200,000
$1,000,000
$800,000
R² = 0.7564
$600,000
Total primary government
revenues
Poly. (Total primary
government expenses )
$400,000
$200,000
Poly. (Total primary
government revenues)
$0
Years
Source: Regional Transportation Authority 2012
Figure 15. Primary government revenue and expenses, 2003 to 2012 and trend line for 10
years
Prior to the year 2009, the RTA was running at a loss; for example, total primary government
expenses were higher than total primary government revenues. However, for the years 2010,
2011, and 2012, the revenues were higher than the expenses, indicating a profitable transit
system for the Chicago area, but only by counting tax and subsidies as revenue. However, the
10-year projections of the data using polynomial regression show a pessimistic scenario for the
financial sustainability of the RTA in the future; for example, expenses will outgrow the current
level of tax revenues in the next 10 years if steps are not taken by the RTA to resolve this issue
in a timely manner. Using the polynomial model to fit the data, 𝑅 2 values of 0.63 and 0.76 are
expressed for expenses and revenues, respectively; for example, 63% and 76% of the variation of
the dependent variables are explained by the model.
The public transportation fund (PTF) consists of 30% of net revenues realized from sales taxes
and real estate transfer tax (RETT) paid to the RTA only upon state appropriation (RTA 2013).
As shown in Figure 16, the projections for the PTF indicate an increase in funds in the next 10
years. 𝑅 2 for the PTF trend line is 0.9, which means that 90% of the variation of the dependent
variable is explained by the polynomial model used.
34
Expenses 2003-2012 and trend line for 10 years
$1,400,000
Sales taxes
Dollars (in thousands)
$1,200,000
Public Transportation Fund
$1,000,000
R² = 0.9009
$800,000
State assistance
$600,000
Investment income
$400,000
Poly. (Sales taxes)
$200,000
R² = 0.22
R² = 0.724 R² = 0.0404
$0
($200,000)
Poly. (Public Transportation
Fund)
Poly. (State assistance)
($400,000)
Years
Source: Regional Transportation Authority 2012
Figure 16. Expenses, 2003 to 2012 and trend line for 10 years
Similarly, the 𝑅 2 for state assistance is 0.72, which means that 72% of the variation in the
variable is explained by time. The 10 year trend line shows an imminent decline in the state
assistance to be received by the RTA. Unfortunately, the polynomial model used fails to explain
the variation of the dependent variable with respect to investment income and sales taxes because
𝑅 2 is 0.22 and 0.04 for sales tax and investment income, respectively.
The administrative expenses almost doubled from $8,918,000 in 2011 to $16,507,000 in 2012.
The trend line for administrative expenses shows a steady increase for the next 10 years. The 𝑅 2
for administrative expenses is 0.68, which means that 68% of the variation in the variable is
explained by time (Figure 17).
35
Revenue Sources 2003-2012 and trend line for 10 years
Dollars (in thousands)
$2,000,000
R² = 0.8615
$1,500,000
$1,000,000
Financial assistance to Service
Boards
Total administration capital
grants
Interest expense
Administrative expenses
$500,000
R² = 0.2089
R² = 0.6763R² = 0.6944
$0
R² = 0.5885
($500,000)
Years
Administration of operating
grant- CTA/PACE
Poly. (Financial assistance to
Service Boards)
Poly. (Total administration
capital grants)
Source: Regional Transportation Authority 2012
Figure 17. Revenue sources, 2003 to 2012 and trend line for 10 years
The financial assistance provided to the service boards are projected to increase rapidly over the
next 10 years (Figure 17). The 𝑅 2 for the financial assistance provided to the service boards is
0.86, meaning that 86% of the variation in the variable is explained by time.
In summary, the increase in financial assistance provided to the service boards, the increase in
administrative expenses, and the decrease in state assistance as well as the increase in the PTF
projected by trend lines for the next 10 years all point towards the financial instability of the
RTA system. Decreased revenue sources and increased public assistance will create a burden for
taxpayers in upcoming years if steps are not taken to decrease expenses as well as increase
revenue sources for the RTA system.
Pension Plans
As stated in the 2012 CAFR from RTA, the RTA, along with Metra and Pace, participates in a
cost-sharing multi-employer noncontributory defined benefit pension plan known as the
Regional Transportation Authority Pension Plan. This pension plan is funded solely by employer
contributions and covers employees that are not covered by a union pension plan. Using the
projected unit credit actuarial method, the RTA, Metra, and Pace are required to contribute
amounts to fund the benefits of their respective employees. As of January 1, 2012, the pension
plan was 70.4% funded (the underfunded actuarial accrued liability was $59.457 million). In
addition to the pension plan, the RTA provides postemployment benefits of limited health care
insurance coverage for its eligible retired employees. Metra and Pace do not participate in this
postemployment benefit plan.
36
Figure 18 projects the actuarial value of assets and accrued liability to increase in the next 10
years and covered payroll (annual payroll of active employees covered by the pension plan) to
decrease steadily during the same time period.
Actuarial Value of Assets, Actuarial Accrued Liability and
Covered Payroll 2007-2012 and trend line for 10 years
Dollars
$600,000,000
Actuarial Value of Assets
$500,000,000
R² = 0.995
$400,000,000
R² = 0.9157
$300,000,000
Actuarial Accrued Liability
(AAL)
Covered Payroll
$200,000,000
$100,000,000
R² = 0.8187
$0
Poly. (Actuarial Value of
Assets )
Poly. (Actuarial Accrued
Liability (AAL))
Poly. (Covered Payroll )
Years
Source: Regional Transportation Authority 2012
Figure 18. Actuarial value of assets, actuarial accrued liability, and covered payroll, 2007
to 2012 and trend line for 10 years
The polynomial model was used to fit the data, and, as shown by the 𝑅 2 , the model is a good fit
for the data because the 𝑅 2 values are between 0.82 and 0.99. This means that a great proportion
of the variation in dependent variables is explained by time. From 2007–2012, the AAL of the
pension plan outweighed the actuarial value of the assets. The projection for the next 10 years
suggests that the situation will remain the same. For the same period, the AAL increased by more
than twice the actuarial value of assets (actuarial value of assets increased by $38,864,169 and
actuarial accrued liability increased by $66,939,115 from 2007–2012). The rate of increase
indicates a threatening picture for the financial sustainability of the pension plan.
In addition, the funded ratio for the pension plan decreased from 76% in 2007 to 70% in 2012.
UAAL as a percentage of covered payroll increased from 51.1% in 2003 to 88.5% in 2012
(Figure 19).
37
Funded Ratio and UAAL as a Percentage of Covered Payroll
150
R² = 0.6974
100
Funded Ratio
Ratio
50
Unfunded AAL as a
Percentage of Covered Payroll
0
-50
Poly. (Funded Ratio )
-100
-150
-200
R² = 0.7802
Poly. (Unfunded AAL as a
Percentage of Covered
Payroll)
Years
Source: Regional Transportation Authority 2012
Figure 19. Funded ratio and UAAL as a percentage of covered payroll, 2007–2012 and
trend line for 10 years
The trend line shows that the funded ratio of the pension fund will continue to increase in the
next 10 years, and UAAL as a percentage of the covered payroll will continue to decrease during
the same time period. The projection has 𝑅 2 values of 0.67 and 0.78 for the funded ratio of the
pension fund and for UAAL as a percentage of the covered payroll, respectively. Figure 20
shows that the employer contribution to the pension plan is increasing year after year.
38
Required Employer Contribution 2007-2012 and trend line
for 10 years
$35,000,000
R² = 0.9737
$30,000,000
Dollars
$25,000,000
$20,000,000
$15,000,000
Required Contribution
$10,000,000
Poly. (Required Contribution)
$5,000,000
$0
Years
Source: Regional Transportation Authority 2012
Figure 20. Required employer contribution, 2007–2012 and trend line for 10 years
An 𝑅 2 of 0.97 for the data set means that the variation in the variable is almost fully explained by
time. In conclusion, the data and the projection of the data using polynomial regression indicates
that the actuarial accrued liability will continue to increase in the future and that the pension fund
will be underfunded and will therefore play a detrimental role in the financial sustainability of
the RTA system.
The figures above for Bi-State and RTA help illustrate the severity of the financial calamity that
mass transit systems are facing all across the United States. If the scope of this paper were to be
expanded, other mass transit systems within the United States would exhibit a more or less
identical picture. The gaps between operating revenues and operating expenses and between the
actuarial value of assets and liabilities are widening annually. Furthermore, the subsidies
provided by various levels of government are increasing yearly. These trends illustrate an
alarming scenario that will be analyzed further below.
ANALYSIS OF CASE STUDIES
The availability and affordability of automobiles encourage people to move farther out from the
city, creating suburban areas and reducing the need for mass transit services for these
individuals. However, mass transit services are essential for the mobility of individuals who
simply cannot afford the luxury of a personal vehicle. The benefits provided by the mass transit
systems are concentrated on the consumers who use them, while the costs are widely dispersed
amongst taxpayers. Core consumers of mass transit are those who habitually use the services
provided by mass transit systems. Therefore, it is crucial to identify the core consumers of mass
transit service and provide high-level services geared towards this consumer base.
39
In 2012, local taxpayers provided about 30% of the total funding for mass transit systems (Table
2). With such large public subsidies coming from local tax payers spread across all geographic
sectors of the city, mass transit authorities feel obligated to offer services to all parts of the city,
irrespective of the expected ridership demand and usage. This notion of expanding transit
services across all geographic sectors of the city is not only idealistic but also cost inhibitive. In
addition, expanding transit services to areas of low demand consequently leads to diluting
services in areas of high demand. Instead, mass transit authorities need to recognize the
importance of redirecting services from the suburbs to urban areas or cities where the core
consumers of mass transit service reside.
As seen in the case studies of Bi-State and Chicago RTA, pension plans are underfunded and
create an enormous liability to both transit agencies. There are two types of pension plans,
namely defined contribution pension plans and defined benefit pension plans. Approximately
three-fourths of the workers that are covered by pension plans are covered by defined benefit
contribution plans, and the remainder are covered by defined benefit plans. Defined benefit plans
are pension plans in which the employee’s pension payments are calculated according to the
years of service provided by the employee and the average of the last couple years of salary
earned at the time of retirement. For defined contribution pension plans, the payments are not
guaranteed at retirement, but the employer contributes funds on behalf of the employees
throughout the employment period (Spiceland et al. 2013).
Most government agencies in the United States have defined benefit plans for their employees.
About 90% of state and local governments provide defined benefit plans to their employees
(CNN n.d.). According to an article by the Office of Retirement and Disability Policy, in 2006
about 33% of state and local government pension plans were less than 80% funded. This
percentage increased to 46% when the stock market crashed in 2008. Despite the greater
economics of defined contribution plans over defined pension plans, the public sector has seen
very little shift from defined benefit plans to defined contribution plans. So far, only Michigan
and Alaska have plans that require new employees to join a defined contribution plan (Butrica et
al. 2009).
Regarding defined benefit plans, the agencies are responsible for making decisions about how
much money to contribute to each individual’s pension plan and how to invest it. These pension
plans tend to be expensive for the agencies, and there is a higher probability of the plans being
underfunded. At the time of retirement, transit employees have the opportunity to retire with full
salary as pension payments (for example, “golden parachute”). For example, if an employee
worked overtime hours during the last years of his/her employment, this amount would be
included in the calculation of the pension amount, resulting in bigger pension payouts.
Changing the labor agreement related to pension plans will be a positive step towards future
financial sustainability for mass transit systems. According to the information provided by Metro
Transit – St. Louis, the Salaried Plan and IBEW Plan were closed to new entrants effective July
1, 2013 and January 1, 2014, respectively. After July 1, 2013, new salaried employees receive an
annual agency contribution of 4% to their 401k account, whereas employees hired on or after
40
January 1, 2014 for the IBEW will participate in a defined contribution plan. There were no
changes made to the 788 ATU O&M and the 788 ATU Clerical plans (Bryant 2014).
The existence of the enormous pension liabilities in the balance sheet of governmental agencies
fueled by the defined benefit plans will ultimately lead these agencies into bankruptcy. For
example, last year the City of Detroit filed for Chapter 9 bankruptcy, which was the largest
municipal bankruptcy filing in U.S. history. The estimated debt for the City of Detroit at the time
of bankruptcy was over 18 million dollars. One of the major reasons cited for this unfavorable
outcome was the legacy costs—pensions and health care plans—owed by the city to its
pensioners. In 2012, the legacy costs comprised 18% of the City of Detroit’s total spending, up
from 8% in 1960. In addition, the city’s total funded retiree health care benefits rose 19% from
2007 to 2011. Over the years, the City of Detroit’s leaders not only failed to take actions to
reduce the legacy costs but also missed opportunities to overhaul the retirement benefit plans.
For example, in 1997 the City of Detroit did not follow in the footsteps of the State of Michigan
in switching from pension to 401(k) plans (Bomey and Gallanger 2013).
There are several lessons that mass transit authorities can learn from the experiences of the City
of Detroit. First, mass transit authorities need to fully understand the future consequences (for
example, liabilities) of having defined benefit plans for their employees. Second, these plans
need to be phased out in favor of defined contribution plans. Last, the public transit authorities
need to carefully assess the following question: “Do public transit systems have to go through
bankruptcy before necessary changes are implemented?” If the answer is no, steps must be taken
towards implementing changes mentioned herein.
Thirty-eight years ago, Mundy (1976) stated that the utilization of vehicles and labor during nonpeak hours of operation is a major challenge faced by urban mass transit systems. This situation
is still true today. Mass transit systems have not yet succeeded in operating at an efficient
economic level. As per Mundy (1976), fixed costs could be reduced via utilization of owneroperated equipment. In addition, Mundy suggested that the provision to contract out services
during peak periods will help reduce or eliminate the dependency of mass transit systems on
operating subsidies (Mundy 1976). The mass transit systems have had 38 years to implement
Mundy’s (1970) suggestions, but have failed to do so, partially because of the artificial barriers
set by the federal government. For example, the notion that only public transit systems can
provide mass transit services hinders competition by making it difficult for private companies to
enter into the industry. Additionally, the prevalence of Section 13(c) of the Federal Transit Law,
which ensures the continuance of collective bargaining right (for example, unions) and
protection of wages and benefits along with transit employees’ other employment conditions
should the transit systems be privatized, obstructs private parties from entering into the mass
transit industry. Furthermore, Section 13(c) obstructs the use of federally funded vehicles by the
private sector.
The union contract provided by the Bi-State Development Agency prohibits subcontracting work
that is necessary for the operation or maintenance of revenue vehicles, except in cases of
emergency or when the work cannot be performed by their employees, even though many drivers
are only needed part time. These barriers prevent mass transit systems from experimenting with
41
the private sector to provide peak-time services or bidding out certain routes, as suggested by
Mundy (1976). Considering the financial difficulties that the mass transit systems are facing
today, it is time for the mass transit authorities to take a step towards experimenting with viable
alternatives to make mass transit systems financially sustainable once and for all.
VIABLE ALTERNATIVES
As this paper has advocated, the future of mass transit systems, in regards to their ability to
increase ridership and financial sustainability, is in peril. However, there are viable alternatives
that could help mass transit systems take steps toward future sustainability. Among the various
methods of revised and sustainable mass transit systems to be implemented, the most common
appear to be privatized light rail; restructuring transit routes and peak times; and varying degrees
of bus system improvements, including bus rapid transit (BRT), comprised of privately owned
buses using private sector employees. Indeed, inviting the private sector to shoulder a portion of
the financial burden could reward a currently failing and outdated system with new life. For
example, maintaining core infrastructure and operating mass transit activities within the public
sector can still allow for the private sector to fill gaps within transit peak times or even
implement trials and beta tests of innovative transit changes. This collaboration is a win for both
sides, in that the private sector is allowed to realize profit for service and innovation while the
public sector benefits in relinquishing its dependence on government subsidies by instead
outsourcing local support. It is time for mass transit to focus on its foundation—the need to
deliver affordable and sustainable transit systems to the masses—rather than provide job support
to a failing industry.
In establishing alternatives in mass transit systems, the majority of costs associated with
implementing the project are capital; activities such as altering or creating transit right-of-way,
building or updating stations and stops, purchasing vehicles, and environmental accommodations
are expensive, but these should be considered one-time expenditures. Most cities that have
adequate capital funds, or a means to raise them through local taxes, often opt for light rail
systems. However, as exemplified in multiple countries such as Brazil and Columbia, with
increasing economic strain on government funds and consumer tax contributions, many cities are
foregoing light rail systems for BRT systems because they allow for not only optimal sustainable
change at a lower cost, but also the flexibility to increase ridership over large geographic areas
(Ashmore and Obregon 2011). Additionally, these transit systems that have little public funding
often farm out services on which the private sector can bid, providing superb system support and
increasing overall success.
In a study of 13 cities in various global locations over the last 50 years, the most frequently listed
reasons cities indicated needing a new approach to their mass transit system were the following:





Transit budget deficits
High traffic congestion
Slow commute times/unreliable service
Disorganized and inefficient transit routes
Disorganized and over-crowded service providers
42


Need to service more low-income populations
Combating poor air quality
However, perhaps one of the biggest failures attributed to revamped mass transit initiatives is the
inability to consider consumer needs in order to increase ridership. Reasons for these failures
include the following:



Poorly focused target market initiatives
Misaligned and unclear transit structure strategies
Lack of consumer interest due to unperceived benefits
(Ashmore and Obregon 2011, Coleman et al. 2013, FHWA n.d., Global Mass Transit 2011,
Goldwyn 2013, Hensher 1999, Leland 2009, Levinson et al. 2003, Lindau et al. 2007, Overdorf
2012, PPP Forum Limited 2014, United Nations Economic and Social Commission for Asia and
the Pacific (ESCAP) 2011, Whitfield 2001, The William and Flora Hewlett Foundation 2011)
As outlined in Overdorf (2012), New Delhi has experienced all of these problems in the failure
of its BRT project. First, the design of the transit system proved unable to alleviate mass traffic
congestion and improve commute time due to the flawed placement of stations. The designers
also targeted the wealthy, politically influential, and car-loving middle class as their target
market instead of the lower and car-less classes, ensuring that neighborhoods where car parking
was heaviest also had the highest traffic congestion. Finally, there was no incentive offered for
those who chose commuting via BRT, as it proved to have longer commute times than car or
bicycle, while the penalties associated with personal vehicles (for example, parking tickets,
speeding) remained low and unwavering.
Therefore, the recommendations for successfully implementing viable and sustainable mass
transit alternatives include:





Prioritizing strategy alignment;
Service differentiation;
Offsetting financial risk by inviting local partner investment;
Fostering consumer ownership to gain interest, awareness and support; and
Utilizing public sector support to reduce government subsidies.
Utilization of Public-Private Partnerships
More financially conservative options include mass transit alternatives comprised of publicprivate partnerships (PPP) that greatly offset costs to taxpayers while simultaneously stimulating
the local economy. The existence of private corporations, unlike government entities, is solely
dependent on the competitive market forces of supply and demand. In order for private
organizations to exist, let alone maintain competitive advantage, they must constantly reinvent
themselves through product and price differentiation strategies. Corporations have the most
43
incentive to innovate and are known for their dynamism, which may be just what the dated and
struggling mass transit industry needs. Government entities, due to their bureaucratic nature, are
plagued by inefficiencies caused by lack of incentives and due to natural union pressure,
compounding their inability to reduce costs. As shown, these inefficiencies have pushed many
mass transit authorities towards financial instability and ever-increasing dependence on general
taxpayer support.
A partnership between the efficient and dynamic private sector and the steadfast security of the
government sector is a strong solution for the financial sustainability of mass transit systems
going forward. Offsetting risk to private investors allows them to do what they do best: keep
employee compensation relative and competitive, maintain efficient vendor partnerships,
effectively measure and influence consumer behavior, and ultimately grow profit margins.
The United Kingdom has been a pioneer in using public-private partnerships to strengthen its
infrastructure. Executed and refined throughout the 1990s, it was a strategy introduced in hopes
of improving profound overspending and unsatisfactory public infrastructure projects while
simultaneously promoting healthier public and private sector relationships (PPP Forum Linited
2014). The model used in the United Kingdom is known as private finance initiatives (PFI), in
which design, construction, financing, operating, and maintenance of facilities are bundled into a
long-term contract with a consortium of firms (Siemiatycki 2011). For example, the United
Kingdom’s prison system has successfully implemented the PFI model to provide adequate
facilities and a healthy environment for prisoners by creating a competitive marketplace for
service providers, keeping costs down and service quality high (Gabriel and Head 2006). Early
transit infrastructure improvements include a rail link to the Channel Tunnel and a second Severn
Bridge (Whitfield 2001). In recent years, countries across the globe have implemented similar
PFI models extensively to build a diverse range of high-quality and competitively healthy
infrastructures.
State and local governments, as well as transportation agencies, in the United States have already
started using PPPs to finance government road infrastructure, citing the Chicago Skyway, San
Diego’s South Bay Expressway, and toll lanes in northern Virginia as examples found on the
FHWA’s website (FHWA n.d.). Authorities need to take advantage of the benefits provided by
PPPs and utilize these partnerships as one method of reaching mass transit sustainability. For
example, instead of contracting out various areas of mass transit infrastructure to different
independent parties (construction, operations, maintenance), mass transit systems in the United
States could bundle these areas together and foster a long-term partnership with a consortium of
firms. This allows the private firms to take on the risk of securing competitive products and
services in an efficient manner while meeting priorities set forth through the PPP agreement. As
a result of the benefits of using PPPs, the minimum standards for the entire industry would be
upgraded, maintained, and likely even surpassed.
Reducing Costs and Increasing Revenue
As simple as this solution may sound, it could be equally difficult to implement cost reduction
and revenue increment measures. As established by the literature review, the unions usually have
44
a strong hold in the public sectors and are opposed to cost reductions via cutting salaries and
benefits, which constitute a major operating cost for mass transit systems. Applying the
fundamental concept of supply and demand (for example, as prices for goods increase, the
demand for those goods decrease), an increase in fares would lead to a decrease in ridership.
Therefore, increasing revenue via increased fares would be difficult to implement in practice
without expecting a decline in ridership.
According to Buehler and Pucher (2011), regulated competition and private sector involvement
has proved to be successful in Germany in operating mass transit systems. In addition, Germany
implemented cost reduction and revenue enhancement measures to improve the financial
performance of public transport. The cost reduction measures included cutting employee benefits
by renegotiating labor contracts, increasing work hours, freezing salaries, implementing early
retirement programs, organizational restructuring, outsourcing subsidiaries, cutting underutilized
routes, and shifting resources to the most lucrative services, among others. The revenue
enhancement measures included fare increases; regional coordination of timetables, fares and
policies in metropolitan areas; region-wide monthly or annual tickets that provide discounts
compared to single trip fares; full integration of public transport with walking and cycling; cost
increases for automobile use; and clustering of new development around transit stops. The
implementation of the cost reduction measures in Germany had some negative consequences,
such as reduction in wages for new hires and reduction of the frequency of services provided, but
improved transit sustainability with additional public funds (Buehler and Pucher 2011).
Historically, Germany has had stronger labor unions than the United States. If Germany was able
to negotiate with its labor unions and come to an understanding in terms of making transit
systems more cost effective, then why can’t the United States? In applying the German
experience to U.S. mass transit systems, transit authorities need to consider the resistance from
the public transit unions. In the short run, resistance from the public unions is inevitable.
Keeping this in mind, mass transit system authorities in the United States need to negotiate new
contracts with the unions as they threaten the viability of mass transit sustainability. Increasing
work hours is unrealistic, but using split shifts and part-time drivers, which would greatly reduce
the variable operating costs of existing operations, is negotiable. Also, organizational
restructuring and outsourcing service delivery to the private sector, as well as cutting
underutilized routes, are practicable solutions to reduce costs for mass transit systems in the
United States.
Although Germany and the United States are comparable economies, there are factors that are
unique to the United States that need to be considered in applying the German experience to the
United States:


For the last 60 years, all levels of U.S. government policies—federal, local, and state—have
been favorable for the automobile, unlike the governmental policies in Germany (Buehler et
al. 2013).
Unlike in Germany, where various levels of government interactively coordinate their landuse plans, in the United States land-use planning is fragmented and lacks coordination
between different levels of government. In addition, land-use planning is not integrated with
45

planning for transportation in the United States (Buehler et al. 2013).
Gas is twice as expensive in Germany as in the United States. Similarly, the price of
automobiles is higher in Germany than in the United States.
Favorable government policies for automobiles combined with cheap gas and relatively
inexpensive automobiles have enabled the public to purchase and maintain personal transport as
opposed to opt for mass transit systems in the United States. The case is the exact opposite in
Germany, where dense populations and social culture are built around public transit, and owning
a personal automobile is not a common, prudent expenditure. Given these reasons, some would
argue that there are some difficulties in adjusting the cost reduction and revenue increment
measures applied in Germany to the United States, especially Germany’s disincentive to
automobile use.
We can begin to improve our own transportation system by building on the fact that the United
States is not Germany, and transportation methods that work there just won’t work in the United
States. Despite the classic American mentality, we cannot have both a well-supported public
transport system and well-funded, endless highway systems, all successfully supported by an
efficient, proactive, and financially sound government. What we can do is learn by the successful
examples of other countries and make those successes our own. Most United States mass transit
systems have been in decline for a long time, so it’s time to retire them and adopt better, more
relevant, sustainable systems. The transit authorities in the United States may have no alternative
but to work towards enhancing coordination among different public transportation modes,
quality of service, and accessibility of all networks.
Contracting Out Transit Services to Private Parties
Much research has been conducted on whether or not contracting out transit services to private
parties provides efficient asset utilization. Some results, such as those exhibited in Curitiba and
Bogota, Colombia, claim success due to collaboration, whereas others claim that inviting
privatization fails to yield effective change (Ashmore and Obregon 2011, Overdorf 2012). The
reason cited against contracting out transit services is that it fails to create innovation in
operations and service levels. However, claims of collaboration failure typically stem from the
union representatives who are understandably more supportive of a unionized employee industry
rather than a nonunionized employee industry. In fact, the use of the private sector creates a
competitive work environment, allowing for optimal costs for service while eliminating outdated
pension plans and other benefits that take advantage of flagrant government overspending. The
result is lower cost, higher quality, and potential profit for the private sector. Such innovation is
precisely what the mass transit authorities can utilize to ensure quality services are provided to
transit riders at an affordable price.
Use of Competitive Tendering of Routes
Profitability of a route depends on the ridership. Routes with historically lower ridership drain
financial resources and provide benefits to a limited number of people. Creating an efficient
network of mass transit systems requires transit authorities to remove the routes that are
46
underutilized and focus resources on routes that have historically high ridership. This revised
system offers two profitable solutions where there used to be none: eliminating the dependence
on subsidies to maintain underutilized routes and capitalizing on routes with the highest demand
to drive profit. Then, these routes that are potentially profitable can be made available for
competitive tendering. The bidder who is capable of generating a profit along with maintaining
quality of service should be allowed to run the route. According to Amaral et al. (2009), London
has successfully implemented a competitive tendering of its urban transit systems that consists of
800 routes covering 629 square miles.
Innovation to Increase Ridership
The pundits supporting mass transit argue that transit agencies create jobs within the community
and foster economic growth. In reality, the jobs created by mass transit systems are governmentfunded positions that drain taxpayer dollars if used inefficiently. In addition, one can argue that it
is not the duty of public agencies to create jobs. However, public officials do have a duty to
service the general public (taxpayers) in the most efficient and innovative way possible.
Over the years, mass transit sectors in the United States have seen little real innovation geared
towards improving service and attracting ridership. For example, new buses and rail cars do
nothing to change the speed and service characteristics of mass transit and therefore are not
innovative changes. If public funds are to be utilized for mass transit, they should be used for
innovative services that provide the one amenity consumers desire: time. For example, publicly
provided mass transit systems in Japan have seen technological innovation over the years
encompassing the needs as well as demands of the riding public. Most notable has been Japan’s
bullet train service, which drastically reduces travel time. Currently, Japan has one of the most
efficient public mass transit systems, transporting over eight million passengers daily (Voyer
2011).
Over the years, the Japanese transit systems have set a high standard within the mass transit
industry in terms of quality of service provided to the riders. It has been 50 years since Japan
introduced the first bullet train, which travelled at the speed of 130 miles per hour. Over these 50
years, constant innovation has improved the speed of Japanese trains almost threefold to 320
miles per hour (McKean 2014). Unfortunately, none of these truly innovative systems and
immense public moves above has made it overseas to the United States, despite the fact that the
transit systems in the country have had 50 years to implement the changes.
Similarly, technology network companies (TNCs) like Uber and Lyft grew out of the public’s
poor perception of cab services on the west coast of the United States. The technology
companies have taken the taxi riding public by storm, especially in the cities like San Francisco,
San Diego, and New York. Despite all the controversies around these tech companies, we have
to see the market innovation that fueled this newborn industry: the creation of a mutual platform
that serves both drivers and riders, dispensed at the tip of the user’s fingers with only a single
click. TNCs have capitalized on both the accessibility of smart phones and the reliance of techsavvy individuals on their phones. This entire industry is based on the convenience provided by
sophisticated apps and the ability of those apps to capitalize on the preferences of the taxi riding
47
public. At the same time, TNCs attempt to avoid any safety regulations or insurance
requirements that regulate the taxi cab industry. Can mass transit learn from these nascent
companies? Probably, yes. The technologies used by TNCs can be customized to fit the needs of
mass transit riders and improve their utilization of mass transit systems.
The future financial sustainability of mass transit depends on the ability of mass transit systems
to shift their involvement from owning and operating public transportation services to supporting
and encouraging the private sector to operate and create different services for different public
needs for transportation. Only in this way can increased ridership levels be achieved. Doing the
same thing year after year and expecting different results is obviously no solution, and time and
money are getting short. The innovations mentioned above, and others, would help brand mass
transit in an entirely new light. These changes would not only show that mass transit systems are
financially reliable, but also that mass transit systems are incorporating the demands and needs
of their riders.
Public Policy Implications
This review of the financial sustainability of U.S. mass transit systems would appear to be rather
negative if it were not for the efforts of other nations to rethink their public transit policies and
turn to the private sector for both creativity and innovation. Readers should note that the work
does not call for a reduction in financial support for mass transit but rather a redirection of funds
for greater efficiency and effectiveness. Public transit in the United States must relieve itself of
the negative financial future it faces unless major policy decisions are made to significantly
reduce the public service workforce and thus operational subsidies for mass transit. In the short
run, this will necessarily include using mass transit assistance funds to keep the retirement
promises it has made to current and past public employees, but, as this work has shown, there is
little other choice. Intuitively, this is difficult for public policy decision makers who have lived
in an era of larger and larger public entities as the solution to urban problems. However, as city
budgets and community services crumble under their oppressive weight, decision makers will
have little choice but to turn to the private sector for the provision of these services. The sooner
this is realized, the sooner financial bleeding can be stopped and changes enacted that would
return the provision of public transportation back to the private sector.
48
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